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The delinquent filing of a 5500 form would be under the DFVCP, an operational failure (i.e., an IRS issue) would be under the VCP as contained in EPCRS, and if there is a fiduciary breach regarding the real estate held in an ERISA-governed plan that would be under the VFCP (it the breach is eligible for correction under that program). Alphabet soup.... If your fear is a potential fiduciary breach or prohibited transaction regarding the purchase or sale of real estate using plan assets, your client should at some point contact an ERISA attorney. If you are not an attorney, you should not engage in the practice of law.

I had Fidelity pull that on me with respect to an ERISA qualified defined benefit plan. Their model order (that they consider sacrosanct) required that the Alternate Payee's share be ___________% or $______________. No option for what we call in Maryland, the Bangs formula: 50% of the gross annuity multiplied by a fraction where the numerator is the number of months during the marriage that the Participant accrued creditable service toward retirement, and the demoninator of which is the total number of month of creditable service at the time of retirement = equals the amount due to the Alternate Payee. I wrote to them and patiently explained that 26 USC 414(p)(1)(B)(2) [IRS equivalent of 1056(d)(C)(ii)] provided --- “(2) Order must clearly specify certain facts - A domestic relations order meets the requirements of this paragraph only if such order clearly specifies— “(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order, “(B) the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined, “(C) the number of payments or period to which such order applies, and “(D) each plan to which such order applies." ...and suggested that neither they nor the Plan Sponsor nor the in house Plan Administrator had to right reject a simple formula that has been adopted almost universally in the USA. They went through a few layers and it finally got to their attorneys you approved my language. But it took almost a year and my pointed out to them that they have a fiduciary duty to the Participant and the Alternate Payee and BTW who is your resident agent for service of process. On the other hand I can see where a Plan would not accept a coverture fraction QDRO if the allocation was in the form of a separate interest and was already in pay status. I am pretty sure that you can only use a coverture fraction with a shared interest allocation. There may be another wrinkle since ERISA plans don't require a divorce in order to transfer pension and retirement plan benefits so long as the parties a "legally separated" pursuant to a Court Order. In the absence of a divorce how do you compute the numerator of the coverture fraction or do they use the date of the legal separation. In South Carolina they use the date the Court approved the Marital Settlement Agreement even though it may another period of time that they have to wait until the divorce becomes final. Go to: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/division-of-retirement-benefits-through-qualified-domestic-relations-orders.pdf and find Q 1-8: Must a domestic relations order be issued as part of a divorce proceeding to be a QDRO? "No. A domestic relations order that provides for child support or recognizes marital property rights may be a QDRO, without regard to the existence of a divorce proceeding. Such an order, however, must be issued pursuant to state domestic relations law and create or recognize the rights of an individual who is an “alternate payee” (spouse, former spouse, child, or other dependent of a participant). And see - https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/qdros.pdf [Reference: ERISA § 206(d)(3)(B); IRC § 414(p)(1); Advisory Opinion 90-46A*; see Egelhoff v. Egelhoff 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001); see Boggs v. Boggs, No. 97-79 (S. Ct. June 2, 1997), see Boggs v. Boggs, 520 U.S. 833, 117 S. Ct. 1754 (1997)] *You can find this at - https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1990-46a.pdf David Goldberg 301-947-0500

Add another voice that is objecting to the annual part of this idea. We look for or advise our clients to look for people when it is relevant. Although places like Inspira people send a lot of forced out to IRAs to them does an annual search. Not sure if it is part of the base fee they charge those IRAs or an add on What I do know is that a few hundred in an Inspira IRA needs to have an incredible rate of return to not have the balance go down annually.

In the current environment of online enrollment/automatic enrollment and estatement delivery, getting employee addresses for mailing purposes can be like pulling teeth. Years ago, we requested W-2s for plan testing purposes and could get addresses from those. Today, everything is done electronically, and address information is not necessarily provided. I know that this question is specifically with regard to participant distributions. However, with the upcoming regulations about once a year paper statements coming into effect, that is going to add an additional burden on someone (PA or outsourced to the RK) to keep track of missing participants. If statements get returned by the post office with no forwarding address, what is the regulation going to specify about lost participants and their paper statement delivery? If the participant is active, a request is going to need to go to the employer for an address update and there should not be a fee for that. RKs should be asking employers to update addresses to prepare for the paper statement rules. If the participant is terminated and the employer does not have a good address, an address search will need to be conducted and $30 to cover that cost is probably reasonable, considering all the possible steps that need to be followed, including any locator search fee.

that depends. by current participants do you mean people with balances? actives with balance? terminated people with balances? actives who are eligible but do not have a balance? if the MEP is relying on the individual employers to send them a census each year, they might not know who the current participant are, just who has balances and who was current as of the most recent year end. If the MEP is also the recordkeeper/custodian/and 3(16) provider it will vary.

If you are an attorney or lawyer for the would-be alternate payee, consider evaluating (and then advising your client) on some possibilities and probabilities about whether getting discovery so a domestic-relations order would state a percentage might be less expensive and more effective than trying to persuade the plan’s administrator to approve an order that states a time-rule formula. You might consider this even if you have no doubt that the plan’s administrator is wrong. I won’t speculate about what ERISA § 206(d)(3)(C) means, what a Federal court might say it means, or what might persuade a Federal court to not defer to a plan administrator’s interpretation. Rather, my practical point is that challenging the plan’s administrator could be an uphill fight. And even if a plaintiff wins an ERISA litigation, that does not assure an award of attorneys’ fees. Under ERISA § 502(g)(1), a court may, not must, award attorneys’ fees. And it’s in the court’s discretion. A Federal judge might wonder why a plaintiff pursued litigation when a little discovery could have accomplished what the alternate payee needed, without bothering the Federal court’s attention. (I have met judges who would think that way.) This is not advice to anyone.

I bet their recordkeeping software could do it within a minute.

So if he's got the derived Earned Income number popping in somewhere else, that becomes the B2 in Miles's formula above.

CuseFan, thank you for helping me think about this. The offer is to ERISA-governed and non-ERISA plans. To plans with or without a cash-out. The $30-a-year fee ends when the individual is found. The brochure does not spell out the details of how that is determined. Perhaps many in a to-be-located class will be found in a first year’s searches. The steps for trying to find an individual are more than records searches and written communications. It can include, if needed, telephone calls to the individual’s spouse, children, other relatives, and named beneficiaries, whether primary or contingent. You’re right that a responsible plan fiduciary would consider the particular fee in a context of the whole of all direct fees and indirect compensation. Yet, adding an incremental service a plan’s current service agreement does not provide might be worth some compensation (or might not). A fiduciary must consider what’s reasonable in light of all the facts and surrounding circumstances. And different plans might have different answers to those questions. The recordkeeper’s offer is a new launch. In my work for my client, I’m not yet evaluating the service. If my client dislikes charging someone for a service she didn’t request, it might be wasteful to look into the service.

@david rigby, I always review a plan's procedures. In this case, while I requested the plans' procedures, the PA did not provide them and instead provided the plans' model order for a benefit in pay status (identical for both plans). The plans' model does not explicitly prohibit fractions, it instead has fields for amount or percentage. Please help me understand under what authority do you (and QDROphile and Peter) see an ERISA plan being able to circumvent § 1056(d)(C)(ii) by refusing to do the math required by the statute's explicit grant of "manner in which such amount or percentage is to be determined", as long as that manner is clear? Yes to @Peter Gulia, these are definitely ERISA plans and their 5500s are in order. Are you thinking here that § 1056(d)(C)'s "clearly" negates its own subsection (ii)'s explicit grant of methodology when that methodology is clearly defined, and executed in the present orders, as a matter of longstanding industry practice?

In general, how long should an MEP take to produce a list of current participants for a participating employer? I would think this could be done within a day. Just curious.

I think Magill's issue stems from the circular nature of compensation and contribution calculations for self-employed individuals when net earned income is just above or less than the 401(a)(17) limit.

Just curious - you're saying that they won't be getting employer contributions, but why not? Nothing's stopping that except a plan amendment, no? Are there any other LTPTs?

My first thought is this is a money-making scheme by the RK, possibly to make up for the lack of check-writing/distribution fees it does not get when there is no de minimis cash out provision. $30 per year once someone is deemed missing or unresponsive seems excessive to me, although googling the subject shows fees ranging $10-$30 and PBGC charging $35 if account > $250. But usually these searches are done once for a person, not annually. Maybe twice, the first time when a benefit first becomes payable and the second time approaching RBD or plan termination. I can see charging an account once or twice in those instances, but annually because I refuse to open/answer a letter? And who and how does that service get monitored to ensure the RK is effectively/efficiently attempting to find and engage participants? If your locator service doesn't find someone in year one, is it really going to have better success in year two or year three? Doubtful. And when do these fees stop, when someone is found? As a fiduciary, I would not engage the RK for this service. I might contract for one year and see what the success rate was, and then contract year to year for new occurrences only. The cynic in me is thinking why should the RK find and engage someone in one year when they could string out the process another year or two, doubling or tripling their take, and still claim success to their client because they found and paid the person. Do they also get a distribution processing fee at the end? I also presume the RK is already collecting a per head charge on these idle accounts? I see this as a big win for the RK with marginal, if any, benefit to the participant and plan sponsor/fiduciary, and a LOT of unanswered questions/issues and potential pitfalls. Or as my avatar would exclaim, "it's a trap!"

blguest, are you certain the plan is an ERISA-governed plan? Might the plan be a governmental plan? If a governmental plan recognizes a domestic-relations order, the plan might require conditions much tighter than ERISA § 206(d)(3) sets. And there can be applicable law beyond the thing that to pension practitioners looks like “the” plan document. Even if an ERISA-governed plan must recognize, or a non-ERISA plan provides that the plan recognizes, not only an order that specifies “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee” but also an order that specifies “the manner in which such amount or percentage is to be determined”, a plan’s administrator might insist that an order “clearly specifies” that “manner”. ERISA § 206(d)(3)(C). Further, consider that a Federal court might defer to an administrator’s exercise of discretion about what “clearly specifies” means, unless one’s interpretation of law or finding of facts is too obviously capricious. For a governmental plan, State law often prescribes in which court and with what special notices and procedures one may sue a governmental actor. And a plan’s administration might be entitled to an attorney general’s or other government-engaged lawyer’s defense with no expense borne by a decision-making official or officer. This is not advice to anyone.

No, QNECs are not subject to 402(g). Somebody could do 24,500 AND get a QNEC. They're nonelective contributions, so I suppose a sponsor could give someone a 72,000 QNEC if they wanted to be that *one* employer..... They are included in the 401(k) test if the employer elects to treat them that way. So in theory, not necessarily, but it's one of those things where the sponsor's probably making them only with the intent of including them. (And then the 401a4 rules can get slightly annoying if you do have QNECs being used in the ADP test.)

The PA has no interest in the method of division, but (as @QDROphile correctly states) the PA can "refuse to do the math". Preferably, this condition is already stipulated in the plan's written QDRO procedures. You did review those procedures, didn't you?

The original poster could probably benefit from reading/re-reading the top-heavy statute, section 416 of the Internal Revenue Code: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section416&num=0&edition=prelim and the regulations: https://www.ecfr.gov/current/title-26/section-1.416-1. (Regs in Q&A format.)

Thank you, Bri! While an odd scenario I haven't used, a client brought it up today and I was very sure it was possible, just kind of silly as the math doesn't usually work in their favor. They're just the curious type and I like to be very straight with them on how things work. One follow-up - Is a QNEC is given in the "goodwill" fashion, the contribution given still counts as Employee Deferrals when calculating the ADP/ACP test, correct? And I would assume the 402(g) limit still needs to be followed when adding actual deferrals to the QNEC amount?

Correct It can, the rules on that changed some years ago, but check the terms in the plan document to verify it is allowed by that particular plan.

As long as they're permitted by your plan document, then that's absolutely a workable solution to the test results. QNECs in and of themselves can exist for no particular reason other than Sponsor goodwill. But they're usually provided specifically because of how they help testing results.

Bill Presson, thank you for aiding my thinking. About the plan that started my thinking about this recordkeeper service and its charge on a to-be-located participant’s account: From an employer’s perspective, a plan provision imposing a small-balance involuntary distribution would not be less expensive than any expense for a locator service if an employer pays no plan-administration expense. From a participant’s perspective: An involuntary distribution and default rollover could result in an IRA with similar yearly account charges and higher-expense investments. (Imagine a big employment-based plan has enough purchasing power to get investment funds with lower expenses than a nonwealthy individual’s IRA could get.) A mail-hold might not be put on an individual’s account until all addresses—email, smartphone, and postal—have suffered bounce-backs. That means such a participant likely would not receive a notice that her failure to specify what she prefers for her involuntary distribution results in an IRA she won’t know how to communicate with. (And a participant likely will have forgotten the summary plan description that described the plan’s provisions for an involuntary distribution and default rollover. 29 C.F.R. § 2550.404a-2(c)(4) https://www.ecfr.gov/current/title-29/part-2550/section-2550.404a-2#p-2550.404a-2(c)(4).) Even if imposing a small-balance involuntary distribution might lessen the number of people subject to a locator service, there would remain many with bigger accounts. A participant might no longer receive quarter-yearly notices of her electronic opportunity to retrieve account statements and other information. A participant might no longer receive paper statements. But a participant still has electronic access to the plan’s website the recordkeeper maintains, and electronic access to her account. And likely has telephone access. Some participants don’t need or want reminders. But paying for the recordkeeper’s locator service presumes the class of participants wants reminders. I see a view that some neglectful participants might welcome being told that one should furnish at least one functional address so the plan has a way to communicate to the participant. And I recognize that meeting that purpose involves acting on a class and so burdens some people who don’t want any reminder (or at least might welcome paying for it). Yet, questions about whether a fiduciary ought to incur an expense and who ought to bear the expense don’t always have one tidy answer about what course of action is “solely in the interest of the participants and beneficiaries . . . for the exclusive purpose of[] providing benefits to participants and their beneficiaries [while] defraying [no more than] reasonable expenses of administering the plan[.]” BenefitsLink neighbors, more observations about this?

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Hi Effen, yes I am sure. They stated they will not qualify an order using a fraction for any benefit in pay status, they will only consider hard numbers (straight percentage or dollar figures). They had no issue with the architecture of the fraction or its presentment, only that it was in use at all, which is what has me here canvassing for others' thoughts. As I read § 1056(d)(C)(ii), and of course the plan document, their demand has no legitimacy, but as it is always possible that those here with experience on the PA side of things may have ideas I haven't considered, I'm all ears. The weird part is that these are not small or new or specialized plans. That the sponsor is a quasi-governmental entity, albeit the plans being purely ERISA creatures, may have something to do with it, but the PA must still administer the plans properly.

Can a plan utilize both a QNEC and ROE for correcting ADP/ACP failures? The client essentially wants to fund a little via the QNEC which should, in turn, lessen the ROE. Is this allowed? Similarly - Can any client fund a QNEC at any time or are QNECs only for use in ADP/ACP corrections? I feel like I have been told they can be done whenever and wanted to make sure. Thank you!